You work from home…but where do you pay taxes?
In our post “Living in One State, Working in Another“, we explained how to file state taxes if you work in one state but live in another.
However, with all the (exciting) advances in technology, more and more individuals are trading in their commutes to the office to instead work remotely from home.
If you work remotely and the company you work for is in a different state than you live in, then your tax situation will differ from someone who physically travels to another state for work.
We understand that you may have no idea how to file your state taxes. We’re here to help!
File taxes to one or two states?
Depending on your specific tax situation, you may need to file two state tax returns; a resident return and a non-resident return.
As a refresher:
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resident-state: the state where you live. Your resident state taxes ALL of your income, regardless of what state it’s earned in.
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non-resident-state: a state you did not live in over the past year. Different states have different non-resident tax laws on who is required to pay non-resident taxes.
Although certain states have varying non-resident tax laws, generally, if you live in one state and work in another remotely (so you don’t physically travel to another state for work), then you would only file and pay taxes to your resident state.
That means, if you’re working remotely you’ll only have to file a resident tax return to the state you live in.
However, if your W-2 form (that form you receive at the end of the year or beginning of January) lists a state other than your resident state, then you’ll need to also file a non-resident tax return to the state listed. In other words, you’ll file two state tax returns; a resident return to the state you live in and a non-resident return to the state listed on your W-2 (the state your company is located in).
Report ALL earnings on your Resident Tax Return!
The most important thing to keep in mind if you work remotely is that you’ll need to report your income earned (no matter what state it’s from) on a resident state tax return (unless of course, you live in a income tax-free state).
For example, let’s say you work remotely from your home in New York for a company located in California. When you receive your W-2, you see that there’s no reference to CA withholding. In this case, you would not have to file or owe CA state income tax. You’d report all of your income earned from your remote work (and any other earnings) on a New York resident state tax return.
Here’s another example- If you’re working remotely from your New York home for a company in California and receive a W-2 form with two states listed, both NY & CA, then you’ll also need to file a CA non-resident tax return. On this non-resident return, you’ll report only the information listed on that W-2 form.
If you end up being double-taxed, your resident state entoitles you to a credit for the taxes paid to the non-resident state. This should be a dollar-for-dollar reduction.
Who Doesn’t Need to File a State Return (income tax-free states)
You’re off the hook from filing a resident tax return if you live in one of the following income tax-free states;
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
So, if you work remotely from your home in Florida, you won’t need to file a resident tax return. In fact, you probably won’t need to file any state tax returns, unless your W-2 form indicates another state’s tax withholding.
Let us do the state calculations for you.
We know that state taxes are a lot to wrap your head around. Rather than trying to figure out what you owe, we’ll do all your federal and state calculations for you at once. You’ll simply enter the information listed on your W-2 form(s).
Calculating state taxes can be a headache- avoid all tax headaches with RapidTax!
Hi,
I want to establish my small business in South Dakota. It is an online immigration law firm working with clients all over the world. I’m currently working and living in China, but I am a California resident.
My question is: Do I have to pay personal income tax in California for my online business established in South Dakota?
Thank you.
Hi Ray,
As long as you are a resident of any state and are earning an income, you need to complete a state resident tax return. On your resident state tax return, you are asked to report all income earned. As long as you are earning an income with your company in South Dakota, you will need to report this on your CA state tax return.
I live in NV (no state income tax) and work for a company in CA. I will work remotely from NV let’s say 80% of the time, and visit and work in CA 20% of the time.
How should I, or my employer, document my time in CA vs. NV in a way that is sufficient? Do I still have the CA company withhold the CA income tax and then file the non-resident return?
Hi Dan,
To put it simply, you are responsible for taxes in the state where you live and the state where you physically earn an income. In your case, it is Nevada. Since Nevada is income-tax-free, you won’t need to file a state tax return. However, California is a different story. Each state tends to make their own rules regarding tax situations but at some point, you will be liable for California taxes. This will either come into effect the day you begin doing business in CA (lasting the duration of your stay) or after a certain-day threshold (usually 30 days). You can check with the CA government website page for more details on the time frame.
Although your employer will only be withholding CA taxes from your paychecks for 20% of the tax year, you will still need to file a non-resident state tax return for CA. This is where you can report the income you earned while doing business there. You will then either be refunded or owe additional tax.
Currently we live in Utah. My husbands paycheck comes from a Fortune 500 company that does have offices here in Utah. I do not work. We want to move back to California. My husband is considered a permanent remote worker. If we sell our Utah home and purchase a home in California, can I move into the new California home and my husband would either rent a domicile here in Utah or come with us and work from there. We do not want to pay double taxes. What is the solution. I am willing to live separately in California until he can secure a job in California if necessary to avoid double taxes. Who do we pay taxes to? Please advise.
Signed, confused in Utah
Hi Anna,
Taxes don’t always seem fair, however in a case like this, they tend to be. An employee is generally only liable for taxes in the state where they are physically working and earning an income and the state where they are a resident. In your husband’s case, as of now, he is living and earning an income in Utah. Therefore, he is responsible for taxes in Utah. Let’s say you and him so end up moving back to California. If you move mid tax year, he will need to file a part year resident return for Utah and one for California. However, from then on, he will only be responsible for California state tax. This is because he will be working remotely and physically earning an income in (not necessarily from) California as well as residing there.
Let him know to discuss this with his employer. If his pay statements continue to show Utah state withholding, then he will just need to file a non-resident state tax return to claim the tax withheld throughout the year.
Hi,
I am an US citizen living in Canada but commute to Illinois for work every two weeks. I live in Illinois for about 15 days every month.
Do I pay Illinois state tax for the time I am in Illinois?
Thanks,
John
Hi John,
One thing to keep in mind is that each state has their own specific guidelines for when they begin holding a non-resident employee working in Illinois to become liable for income taxes. In the case of Illinois, you are liable for state tax on the first day of physically doing business in the state. You will only be responsible for Illinois state tax for the duration of your stay there. Once you are back in Canada and physically earning your income there, you are no longer liable for Illinois state taxes. At the end of the tax year, you will need to file an Illinois non-resident state tax return along with your federal tax return (and your tax liabilities for Canada). If you need any assistance, RapidTax can help with all state and federal tax returns. We also have a number of ways that you can reach our customer service team via phone, live-chat and email.
I live with my wife in CA. I work for a Singapore company where I often pay tax in Australia. Can i get exemptions from the amounts I pay tax on in Australia for state and federal tax.
Hi Russell,
According to the IRS, if you are a U.S. citizen (or resident alien), and you earn income from another country, the same rules apply as if you were earning income from somewhere in the United States. Your worldwide income is subject to U.S. income tax, regardless of where you live.